Tesco’s £3.7 billion takeover of Booker has been dealt a blow after shareholders in the wholesaler were advised to vote against the deal.

Advisory firm Institutional Shareholder Services believes that Booker investors will have “limited potential benefit” from the tie-up, adding that the transaction “does not warrant support at the current terms”.

“Although the combination is expected to result in substantial synergies, it appears that Booker shareholders will have limited potential benefit from those synergies.

“In addition, the rationale for Booker shareholders to give up control appears less than compelling at the relatively low premium offered,” ISS said in a note.

The group is advising Booker investors to vote against the deal.

The comments come after Sandell Asset Management, which holds a 1.75% in Booker, also came out against the deal on the current terms, pressing for a higher offer from the supermarket giant.

Sandell said that, as part of the deal, Booker should pay out all of its 2018 profits as a closing dividend to shareholders, as opposed to 65%.

The group has also claimed that Booker is worth between 255p and 265p a share, much more than the 205.3p offered by Tesco.

Booker shares were trading at 224p on Thursday, up 1.5%.

ISS said Tesco “appears to be getting the better deal under the current terms”.

It added: “The current mechanism to pay only 65% of full-year 2018 earnings as a closing dividend appears unjustified, given that the expected closing date of the deal coincides closely with Booker’s fiscal year end, and that, in anticipation of the Tesco transaction, Booker paid out to shareholders all its earnings for the previous fiscal year.”

The ISS note means that the deal is likely to face intense shareholder scrutiny ahead of a vote on the deal on February 28.

For the deal to be approved, 75% of Booker shareholders must vote in favour of it going ahead.

In December, Tesco, which is undergoing a turnaround under chief executive Dave Lewis, got the green light from the competition watchdog for the takeover.

The firms also announced that the highly-regarded Booker boss Charles Wilson will head up Tesco’s UK business following the takeover.

Tesco has more than 3,000 stores across the UK, while Londis and Budgens owner Booker is the country’s largest wholesaler.

It supplies more than 5,000 stores under the Premier, Londis, Budgens and Family Shopper brands, as well as thousands of independent retailers and caterers.